Skip to comments.ECB Board Member Lashes Out At Central Banking: Ignore "Mathematical Models", Focus On Reality
Posted on 09/04/2016 10:18:32 AM PDT by amorphous
At first (literally the day the Fed announced QE1) it was just "tinfoil fringe blogs" who predicted the failure of the central bank's attempt to boost the economy by printing money, instead warning that all the Fed would do is unleash an unprecedented income and wealth divide that may culminate in civil war and hyperinflation. Then, gradually, analysts, pundits and even the mainstream press admitted the truth, i.e., that tin-foilers were right all along, until recently even the Fed's own mouthpiece, Jon Hilsenrath, one day before the Jackson Hole meeting wrote that "Years of Fed Missteps Fueled Disillusion With the Economy and Washington", an article which set the stage for the pivot to the US issuance of much more debt, because apparently $9 trillion in new debt under Obama is not considered enough "fiscal stimulus."
However, with virtually everyone else now slamming central banks for fooling the world for the past 7 years that they knew what they were doing, now that even Yellen admitted she has no idea what will happen in just the next 3 years projecting a 70% confidence interval of the Fed Funds rate of between 0% and 5% by the end of 2018 (we wonder what a 100% confidence would look like)...
.. overnight central bankers themselves attacked central bank policies, when ECB board member Yves Mersch warned on Saturday against using "extreme [policy] measures [with] unacceptable side effects" to shore up the eurozones weak economy, which he said could undermine trust in the single currency, a warning aimed squarely at Mario Draghi.
Merschs comments, reported first by the WSJ, come amid a growing debate over whether central banks in Europe and Japan should bolster economic growth by turning to even more tools such as helicopter money." Even more ludicrous, as we reported yesterday, Reuters already lobbed a tentative trial balloon, hinting that the ECB may be "forced" to buy ETFs and equities having virtually run out of bonds to monetize. Still, despite all ongoing ECB deflationary counter-measures, eurozone inflation was just 0.2% in August, far below the ECBs near-2% target. Investors are increasingly concerned that the central bank is running out of tools.
Surprisingly, at this point Mersch joined the Weidmann bandwagon, and cautioned against "academic proposals [that] seem to prefer sophisticated models to social psychology."
Or in other words, for the first time, a central banker has suggested that broken (which is a far more accurate definition that sophisticated) financial models should be ignored when dealing with reality.
"We cannot fulfill our mandate with mathematical equations, but only with instruments that maintain trust in the currency," Mersch said at an annual economic forum on the shores of Lake Como, Italy.
Expanding his tongue in cheek criticism of Mario Draghi's relentless crusade to hurt the euro and reflate asset prices at all costs, Mersch then said that "extreme measures or legal violations of our mandate aren't among those instruments."
While Mario Draghi has described helicopter money as an interesting academic concept, he has said repeatedly that policy makers havent discussed the idea at ECB meetings. Of course, this will soon change, and Mersch's warnings will be ignored, until such time as the "trust in the currency" is finally lost.
The ECBs 25-member governing council will hold its next rate-setting meeting on Wednesday and Thursday in Frankfurt. With Mario Draghi already in process of nationalizing the sovereign and corporate bond markets, after the Reuters trial balloon, the central bank may "surprise" everyone and launch the outright buying of equities next.
Wasted money on Obamacare? What else did Obama spend this on...he has/is minimizing our military....what else?...where did the money go....cronyism?
Thanks for posting this.
FR is amazing in its scope.
May they always be remembered...
None the less, you're welcome here as well. It's important we keep an eye on our financial stability and the soundness of our money.
Guessing a large portion went into the pockets of Soros and like, and numerous multinational corporations.
Even with huge amounts being extracted by government, from GDP annually, Obama still manages to double our national debt in 8 years.
It’s simple. Don’t make loans to people who are unlikely to pay them back.